IP: ‘Challenging market conditions’ reflected in ’23 earnings

International Paper (IP) is one of several major paper and packaging companies to report earnings recently, and has echoed similar sentiments of challenging market conditions throughout 2023.

“[Last year] proved to be a challenging market environment, which impacted our financial performance,” IP Chief Financial Officer Timothy Nicholls said during the company’s earnings call Feb. 2. “During much of the year, underlying demand for our products was lower as consumers prioritize spending on services and essential goods.

“Demand for our products was further constrained by inventory destocking, as our customers and the broader supply chain work through elevated inventories of their products. The lower demand, combined with declining sales prices for our products and sticky cost inflation, resulted in lower revenues and earnings in 2023 when compared to prior periods.”

Memphis, Tennessee-based IP was the second-largest recovered paper consumer in 2023 according to Recycling Today’s list of largest recovered paper consumers in North America, consuming approximately 5 million tons last year.

The company reports full-year 2023 net earnings of $288 million, but posted a $284 million loss in the fourth quarter, and its full-year sales of $18.9 billion are down from $21.2 billion in 2022. The company’s fourth quarter 2023 sales were essentially flat quarter over quarter at $4.6 billion, but down from the $5.1 billion in fourth-quarter sales in 2022.

Nicholls said IP saw a demand trough in the first half of 2023 before noticing continued improvement throughout the second half of the year.

But the company noted the cost benefits of closing its containerboard mill in Orange, Texas, and the shutdown of two pulp machines at mills in Riegelwood, North Carolina, and Pensacola, Florida, will ramp up throughout 2024, and expects demand across its portfolio to continue improving as it saw in the fourth quarter of 2023.

“Our teams were focused on driving our cost in all categories of spend across our large network of mills, box plants and supply chain operations,” CEO Mark Sutton said of IP’s 2023 performance. “In addition, we took strategic actions to structurally reduce fixed costs in our mill system, in our industrial packaging business and our global cellulose fibers business.

Net sales in IP’s industrial packaging segment were essentially flat quarter over quarter, from $3.78 billion in the third quarter to $3.84 billion in the fourth, but are down from the $4.17 billion in net sales recorded in the fourth quarter of 2022. Full-year sales in industrial packaging were down from $17.5 billion in 2022 to $15.6 billion in 2023.

“In our box business, our go-to market strategy is focused on improving margins and mix by investing in capabilities to enhance our value proposition to align with customer needs,” Sutton said.

The company’s global cellulose fibers business also saw a decrease in net sales. In the fourth quarter, segment net sales were $656 million in the fourth quarter compared with $725 million in the third quarter, while full-year net sales of $2.9 billion are down from $3.2 billion in 2022.

“Our strategy is focused on optimizing the business, by reducing exposure to commodity pulp and aligning our mill footprint,” Sutton said of the global cellulose fibers business unit.

IP has chosen not to provide a full-year earnings outlook for 2024 given what it says is a fluid market environment, but Nicholls emphasized the expectation that demand will continue to improve throughout the year and said the company plans to invest between $800 million and $1 billion in capital investments for general maintenance, cost improvement and enhanced capabilities in its box business.

“Overall, we believe the demand environment will continue to improve across our portfolio and we have initiatives focused on improving mix and margins in both businesses,” he said. “We expect the first quarter of 2024 will be an earnings trough due to seasonally low volumes, seasonally higher costs and unfavorable impacts from the January winter freeze.

“In 2024, our North American box business may trail the market as we continue to execute a go-to-market strategy focused on margin and mix improvement. … We also expect higher costs for OCC as demand continues to improve and general inflation on things like transportation, wages, employee benefits, materials and services.”

IP’s full earnings presentation can be found here.